Offshore captives that have elected to be taxed as American companies under Section 953(d) of the tax code would definitely feel the bite of the new IRS motion. Conspiracy theorists are now asking what captives the IRS could go after next should it succeed here.
While onshore trade groups scramble to stop the proposed tax changes, offshore captive folks, for their part, are keeping mum, which onshorers are interpreting as the "perfect" position, as described by Molly Lambert, president of the Vermont Captive Insurance Association. Offshore domiciles like Cayman and Bermuda do not want to draw the IRS' attention--and draw it away from the task at hand--as this new proposal is not necessarily a "boon" to them, said Lambert in an interview.
Dan MacLean, chairman of the Insurance Managers? Association of Cayman, said just that during an opening speech of this past December's Cayman Captive Forum at the sand-castle brown Ritz-Carlton Resort on Seven Mile Beach. MacLean, also managing director at Aon's island office, wondered aloud to the audience of about 850 captive professionals if IMAC should keep to the sidelines and let the onshore domiciles spearhead the effort against the IRS.
If Cayman and other offshore domiciles got involved, he said, it could only draw undue attention from U.S. congressmen and Grishamesque questions about their motivation.
"Legislative changes are often swift and unexpected," MacLean warned.
Dennis Harwick, president of the domicile-neutral Captive Insurance Companies Association, interpreted MacLean's speech to mean that IMAC realized the IRS proposal--whereby certain captives could no longer be able deduct their loss reserves--could hurt the entire industry, domestic and abroad. Offshorers don't see the situation as a "windfall," said Harwick.
But other experts in the industry, those with perhaps a more realpolitik read, interpret the offshore domiciles' silence a bit more skeptically. The view is perhaps not as cynical as "the enemy of my enemy is my friend" but that the offshorers are simply keeping quiet because they can. In reality, the IRS proposal could affect a smaller fraction of the industry than the clamor about it might let on. So why bother to agitate if it won't hit you?
MATTHEW BRODSKY is a Web editor/senior editor at Risk & Insurance®.
January 1, 2008
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